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    How adjustment programs can help the poor.The World Bank's experience.

    Ribe H; Carvalho S; Liebenthal R; Nicholas P; Zuckerman E

    Washington, D.C., World Bank, 1990. 49 p. (World Bank Discussion Papers No. 71)

    Little is known about the overall impact of adjustment programs on poverty. To a large extent, this is because it is difficult to distinguish the effects of externally induced recession from the effects of the policies and programs designed to offset them. Nevertheless, one clear lesson from experience has been that an orderly adjustment process designed to establish a new equilibrium growth path is indispensable for improving the longer-term position of the poor. Some adjustment measures can affect the poor adversely. This adverse impact may result from reductions in public expenditures, increases in prices of goods and services consumed by the poor, and declines in employment or real wages in sectors in which they work. Appropriate social and economic measures can help to reduce the adverse impact on the poor and create opportunities for stronger poverty reduction in the future. The most common way of addressing the adverse impact of adjustment has been the implementation of targeted compensatory programs. Such programs can compensate those affected directly by adjustment (for example laid-off public sector employees) or provide temporary employment of relief to the chronically poor. But these programs have often been too complex and have faced serious shortcomings such as insufficient political commitment, institutional weaknesses, shortages of funding and poorly trained staff. Greater attention should be given in the future to identifying the most appropriate interventions as well as to their design and implementation. Changes in the design of adjustment programs can promote the longer-run interests of the poor, but have received relatively little attention. Appropriate design changes can help to foster pro-poor growth by, for example, removing biases that favor capital-intensive production or other impediments to employment growth. They can also enable reallocations of public expenditures in ways that support, or improve the efficiency of, programs that help the poor to take advantage of the emerging economic opportunities (by developing skills or providing the necessary complementary infrastructure). Finally, appropriate design changes can help mitigate the possible adverse impact on the poor, for example, by targeting subsidies more effectively. Subsidies that have a large impact on the income of the poor (even if only a small proportion of the subsidy reaches them), should not be reduced or eliminated unless alternative means of reaching the poor are introduced. (author's)
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